Shanghai free-trade zone still has much to prove
While the fledgling Shanghai free-trade zone, a pilot for the future liberalisation of service industries, is yet to live up to the hype of its launch, it still enjoys high-level political support.
While the fledgling Shanghai free-trade zone, a pilot for the future liberalisation of service industries, is yet to live up to the hype of its launch, it still enjoys high-level political support. A reminder of this emerged on the eve of its first birthday, with the announcement that Beijing was lifting restrictions on foreign investment in more than 20 sectors in the zone, including the lucrative shipping industry. This follows Premier Li Keqiang's inspection tour of the 29 sq km zone this month, and his statement that market forces would be allowed to play a dominant role in the FTZ. His tour coincided with the launch of an international gold trading platform, expected to be the first of a number of commodity trading platforms.
Li remains a strong advocate for the Hong Kong-style free port, having made the final decision to set it up in Shanghai despite concerns of financial regulators about the risk of hot-money flows. Partly as a result of this caution, promised de-regulation and yuan convertibility under the capital account in the zone have not materialised. The zone also lacks Hong Kong's legal and tax advantages.
Foreign investors are to be allowed to own 51 per cent stakes in joint shipping ventures, giving big shipping lines direct access to business at the Yangshan deep-water port. The liberalisation also includes the lifting of some restrictions on manufacturing industries. Analysts remain unimpressed, saying the limited size of the zone could make it difficult for foreign firms in the listed sectors to set up shop.
On the other hand, outward investment by mainland companies is benefiting from fewer bureaucratic obstacles, with Shanghai Joint FTA Development expecting more than 100 mainland firms to make US$3 billion to US$4 billion in overseas investments this year. The Shanghai FTZ is envisaged as a forerunner of similar zones, but it is likely to remain the only one until it proves itself - a reflection of Li's determination to make it a successful model.